The Effects of Wind Power Generation on the Electricity Price: High Frequency Evidence from New York

42 Pages Posted: 22 Jul 2020 Last revised: 25 Aug 2020

See all articles by Pierre-Olivier Pineau

Pierre-Olivier Pineau

HEC Montreal - Department of Decision Sciences

Yousef Nasseri

HEC Montreal

Nima Rafizadeh

HEC Montreal

Date Written: July 20, 2020

Abstract

Exploiting the hourly data from the New York Independent System Operator (NYISO) database, we model the impact of wind generation on electricity spot prices and on their dynamic volatility behavior while taking into account the variations in zonal wind output. We find that the growing share of wind generation not only leads to a decline in electricity prices, but also results in an increased price volatility. The results indicate that a 1% rise in the aggregate wind power generation leads to a 0.012% decline in the average NYISO prices while the mentioned price effect in the wind producing zones is estimated to be a 0.055% to 0.085% downward adjustment of the zonal prices for a 1% growth in wind generation within the zone. Our findings have two implications: First, the increasing downward pressure on electricity prices due to the growing share of wind generation can challenge the financial sustainability of the electricity markets in the long-run, which highlights the need to proceed towards an effective market structure to ensure the recovery of fixed generation costs. Second, the induced price volatility implies that effective use of price risk hedging strategies should be considered by all actors in the power markets.

Keywords: Wind Generation, Electricity Price, Price Volatility, High-Frequency Data

JEL Classification: C32, Q42, Q48

Suggested Citation

Pineau, Pierre-Olivier and Nasseri, Yousef and Rafizadeh, Nima, The Effects of Wind Power Generation on the Electricity Price: High Frequency Evidence from New York (July 20, 2020). Available at SSRN: https://ssrn.com/abstract=3639249 or http://dx.doi.org/10.2139/ssrn.3639249

Pierre-Olivier Pineau (Contact Author)

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Yousef Nasseri

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Nima Rafizadeh

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

HOME PAGE: http://www.nimarafizadeh.com/

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